Are you compliant? MTD for VAT now requires digital links via functional compatible software

When HMRC first introduced Making Tax Digital for VAT, concessions were given to help facilitate the transfer of data between computer software packages through manual intervention.  On 31/03/2021, this ‘soft landing period’ comes to an end.  Some of our clients have contacted us about this issue, questioning what will change and if they are compliant.

As explained in the public notice VAT Notice 700/22: Making Tax Digital for VAT - GOV.UK (www.gov.uk), all VAT registered businesses must keep and preserve certain records and accounts. Under Making Tax Digital, some of these records must be kept digitally within functional compatible software. 

This is defined as a software program, or set of software programs, products or applications, that must be able to:

  • record and preserve digital records.
  • provide to HMRC information and returns from data held in those digital records by using the API platform.
  • receive information from HMRC using the API platform.

There are software products available that will perform all of the functions listed above. Some software programs will not be able to perform all of these functions by themselves. For example, a spreadsheet can record information but could not perform the other 2 functions listed.  It can still be a component of functional compatible software if it is used together with one or more programs that do perform those functions.

The complete set of digital records to meet Making Tax Digital requirements does not all have to be held in one place or in one program. Digital records can be kept in a range of compatible digital formats. Taken together, these form the digital records for the VAT registered entity.

Digital links

Data transfer or exchange within and between software programs, applications or products that make up functional compatible software must be digital where the information continues to form part of the digital records. Once data has been entered into software used to keep and maintain digital records, any further transfer, recapture or modification of that data must be done using digital links. Each piece of software must be digitally linked to other pieces of software to create the digital journey.

A ‘digital link’ is one where a transfer or exchange of data is made, or can be made, electronically between software programs, products or applications. That is without any involvement or manual intervention such as the copying over of information by hand or the manual transposition of data between 2 or more pieces of software. 

HMRC does not consider the use of ‘cut and paste’ or ‘copy and paste’ to select and move information, either within a software program or between software programs, to be a digital link.

The following rule has the force of law:

If a set of software programs, products or applications are used as functional compatible software there must be a digital link between these pieces of software.

The soft-landing period is now coming to an end.  For VAT periods starting on or after 1 April 2021 systems must use digital links for any transfer or exchange of data between software programs, products or applications used as functional compatible software, as stipulated in legislation.

Bridging software, such as Absolute Excel VAT filer, is a digital tool incorporating relevant Making Tax Digital APIs that is used to connect accounting software to HMRC systems. It allows the required VAT information to be reported digitally to HMRC, and for information to be sent digitally back to the business from HMRC.  

Please be aware that for the time being, these tools continue to be acceptable under MTD.

 

If you have any queries about the software that you are currently using, and whether it is compliant for MTD purposes, please do not hesitate to contact either of our Tax Directors, Mary Tierney or James Amos on 0345 3303200 or via e-mail at mary.tierney@bennettbrooks.co.uk or james.amos@bennettbrooks.co.uk .